How does the theory of efficiency wages explain above-equilibrium wages?
A) Employers are forced to pay higher wages in efficient markets.
B) Employers give their workers a higher wage in the hope that it will lead to increased productivity.
C) Workers get higher wages when they prove they are increasing their productivity.
D) Workers demand higher wages to compensate for poor fringe benefits.

Question

Quizplus · Accepted Answer

The theory of efficiency wages states that employers give their workers a higher wage in the hope that it will lead to increased productivity. This can occur because higher wages provide an incentive for workers to work harder, take fewer sick days, and stay with the company longer. This results in a more productive workforce, which can lead to higher profits for the company. Therefore, above-equilibrium wages can be explained by the desire of employers to motivate their workers to be more productive.

How Does the Theory of Efficiency Wages Explain Above-Equilibrium Wages